Is Microsoft allowed to make arbitrary business decisions that prevent it from responding to security vulnerabilities or is backwards compatibility given a special pass?

They own an operating system. We get to hold them responsible for whatever choices they make that impact security.

Windows attempt to always remain backwards compatible has left a huge tangled mess of dependencies. I applaud Microsoft's attempts at this but a slow cycle of breaking changes would allow a much better long-term system. Of course, that also means you have to be committed to some sort of long-term roadmap (something that appeared to be lacking between XP and Longhorn/Vista/7).

The last time they did that was with the launch of vista. People were not pleased.